The shaky making of economic policies

When markets are wrong and fail, governments step in and correct them – is that so? Or, the other way around; when governments make a mess of things; markets tend to find their own ways to correct them. Absolutely not! But many seem to believe that such relations exist between markets and governments’ actions in the making and shaping of economic policies.

As usual, reality is much more complex than most of us are able to grasp. Even economists and other analysts of public affairs tend to take for granted that there exist a sort of permanent confrontation between governments and markets. Two camps can be spotted; one which believes that markets are prone to failures, and that governments emerge to correct such failures, and another which believe that markets perform well and that governments often make errors, and thereby represent the problem and not the solution in the effort to make things work smoothly.

I once read a book by Alan S. Blinder, a renowned American economist, where the author explained “Murphy’s Law” in economy. It reads: “Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently.”.

When we add the following platonic observation by Herbert Stein, who had more than 50 years of experience as an economist in Washington DC and as an advisor to Presidents Nixon and Ford before he died in 1999: “Economists do not know very much about the economy; other people, including the politicians who make economic policy, know even less”, we may better understand why things go very wrong from time to time in the economic and financial sphere.

A little piece of comfort lies in what has been known as “Herb Stein’s Law”: “If something can’t go on forever, it won’t.”. So, let us keep our necks straight and high and do the best we can in order to keep our own economic universes ship shape, however small they are in the larger context. Economists and politicians are no better in dealing with their economic universes, however spooky that sounds.

Knut Harald Nylænde is a Norwegian businessman and investor. He participates from time to time in public discussions about management and financial issues as well as about political issues.